< meta name="DC.Date.Valid.End" content="20050825"> Amendment Nine: Answers to Debt Relief Questions

Tuesday, November 09, 2004

Answers to Debt Relief Questions

Many of the same questions re-appear from our readers, here are some responses to the most common Qs I've seen so far:

(1) Yes, I fully realize debt relief is an atom bomb. Federalist X tells me that irresponsible debt forgiveness was one of the animating forces behind the Constitution. My answer to this is, SO WHAT? Sometimes you gotta be bold. And if you look at our numbers just on the retail/consumer side, we aren't exactly stealing the banks blind. Our real goal is merely to lower the default rate on high interest debt. Change begins at the margins so the proposal is quite modest.

(2) Yes, the banks will fight this and some will certainly fail, but again, SO WHAT? Banks fight a lot of stuff and over the long-term, the improved financial situation only makes their business better. Secondly, the soft approach will by no means throw most of Delaware into 11; in fact I can argue that it will do the opposite, but I need a projector and some much cooler charts than available on this blog.

(3) No, this isn't simply tax cuts for the poor. This is a restructuring of high interest debt using the federal government's tax and spend power as leverage in the negotiation. That's all.

(4) For those readers who had some cognitive dissonance, think of this is as a simple debt restructuring between all credit card holders and all banks all at once. The feds are merely the attorney or representative for all credit card holders. The goal of the restructuring is to bring down the average interest rate two points. In return, the banks will get a combination of new debt, better controls over how they issue credit and how revolvers are drawn down, and of course, equity in the new enterprise. Except here the new enterprise is the US government. So instead of stock or warrants, they get future tax breaks and credits. These incentives could be a new type of security as well.

Not sure if that clarifies anything, but hope it helps!